European Union divided in build-up to summit

Just two weeks away from a meeting of the European Council that could determine the future of the euro, the leaders of the European Union are in disagreement over whether to build up or play down expectations.

The European Commission has embarked on a high-risk strategy of building up expectations. Commission President José Manuel Barroso yesterday (13 June) urged the European Council to send “a clear signal that the member states and the EU institutions consider economic and monetary union and the euro as indispensable assets for Europe’s future”.

He said the meeting on 28-29 June should have at its core “a discussion on the building blocks for the future of the economic and monetary union”.

Pressure on the EU is mounting from outside the eurozone. Barack Obama, the president of the United States, last week made a round of calls to European leaders, including Angela Merkel, the chancellor of Germany, Mario Monti, Italy’s prime minister, and David Cameron, the UK’s prime minister. White House spokesman Jay Carney said that the US hoped a sense of urgency in Europe “will lead to expedited action in the coming days and weeks”.

At a meeting of the G20 group of developed and emerging economies next week (18-19 June), the countries of the eurozone will be urged to put their house in order.

Barroso told MEPs: “We can expect others in the world to point the finger at the European Union and the euro area as the source of all the world’s problems, including their own.”

Guy Verhofstadt, leader of the liberal group in the European Parliament, said: “Unless and until we have a structural and global solution to the crisis we will simply continue fire-fighting.

“The building blocks are now clear. We need a banking union, a fiscal union and a political union to underpin the single currency and restore stability, confidence and growth.”

The German government however is battling to reduce expectations that the summit on 28-29 June will make dramatic breakthroughs, not least because it fears a backlash from the financial markets if they are disappointed.

Merkel told German radio last week: “I don’t think that there is a single summit at which the big design will appear.”

Germany will be looking to build on the principles underlying the fiscal compact – binding rules on member states that tie them to fiscal and budgetary discipline. In particular, it wants to add obligations on member states to set out how they will reduce their debt burdens.

It believes there is much potential for the other large eurozone economies – France, Italy and Spain – to make structural reforms.

Germany is also expected to push for greater political integration and better-targeted use of the EU’s structural funds and cohesion funds.

The Commission and its allies among the member states have been urging an agreement on Eurobonds. The proposal is not one that Germany will agree to. But it is prepared to countenance some discussion of a eurozone banking union and a resolution fund for banks.

Support is growing in national capitals for the type of banking union set out by Michel Barnier, the European commissioner for the internal market and services, which would see the creation of a banking levy to feed into a common fund to protect Europe’s systemically important banks. However, this is likely to run into opposition from the UK, meaning that it might well be limited to the eurozone.

The European Council could be preoccupied with the question of what to do about Greece, where a general election will be held this Sunday (17 June).

The final opinion polls put the centre-right New Democracy party running neck-and-neck with the radical left party Syriza. Syriza’s leader, Alexis Tsipras, has vowed to renege on commitments made by previous governments in return for bail-outs from the eurozone and the International Monetary Fund, though he says that he wants to keep Greece in the eurozone. If Syriza wins the election, or if the elections are as inconclusive as they were on 6 May, then Greece’s exit from the eurozone may be impossible to stop.